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Does Labor Supply Respond to a Flat Tax? Evidence from the Russian Tax Reform

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Author Info
Duncan, Denvil (Georgia State University)
Sabirianova Peter, Klara () (Georgia State University)

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Abstract

We exploit the exogenous change in marginal tax rates created by the Russian flat tax reform of 2001 to identify the effect of taxes on labor supply of males and females. We apply the weighted difference-in-difference regression approach and instrumental variables to the labor supply function estimated on individual panel data. The mean regression results indicate that the tax reform led to a statistically significant increase in male hours of work but had no effect on that of females. However, we find a positive response to tax changes at both tails of the female hour distribution. We also find that the reform increased the probability of finding a job among both males and females. Despite significant variation in individual responses, the aggregate labor supply elasticities are trivial and suggest that reform-induced changes in labor supply were an unlikely explanation for the amplified personal income tax revenues that followed the reform.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4257.

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Length: 2010 pages
Date of creation: Jun 2009
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Handle: RePEc:iza:izadps:dp4257

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Related research
Keywords: employment participation; wage endogeneity; regression discontinuity; difference-in-difference; labor supply elasticity; flat tax; personal income tax; labor supply; Russia; transition;

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Find related papers by JEL classification:
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
P2 - Economic Systems - - Socialist Systems and Transition Economies

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References listed on IDEAS
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  18. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, 06. [Downloadable!] (restricted)
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